Mr. MILLER. Thank you very much for permitting us to appear. Senator BURDICK (now presiding). Mr. French, president of the American Patent Law Association, is the next witness.

STATEMENT OF NATHANIEL R. FRENCH, PRESIDENT OF THE AMERICAN PATENT LAW ASSOCIATION, ACCOMPANIED BY THOMAS F. FISHER AND GEORGE W. WHITNEY

Mr. FRENCH. I am Nathaniel R. French of Dayton, Ohio. I have been practicing in the field of patent law for more than 30 years.

On my left is Thomas F. Fisher of Cleveland; on my right George W. Whitney of New York, both of them, like me, lawyers in private practice, specializing in the field of patent law.

I am speaking here as president of the American Patent Law Association. What I would like to do is to highlight the position of the association using as the base of my remarks the statement which we filed earlier this afternoon, and which was completed this morning and is not necessarily the most finished statement that we could produce under a rather tight time schedule. I, therefore, ask leave to supplement my testimony with a more extensive written statement for printing in the record.

Senator BURDICK. Without objection, your statement will be made part of the record.

Mr. FRENCH. The American Patent Law Association presently has a membership of about 3,800 laywers from all over the country. In our practice most of us find ourselves alternatively involved in both the granting and the accepting of license rights and in the consideration of the full range of patent-antitrust problems.

Mr. Fisher is a member of our board of managers and for, I think, about at least 6 years before coming on the Board this year, he was either the chairman or subcommittee chairman of our committee on antitrust and he is presently the board liaison member to this commit

tee.

Mr. Whitney is presently chairman of our committee on patent law and he has held that position or a subcommittee chairman in that committee for upwards of half a dozen years.

The position I would like to state briefly here has been evolved after extensive consideration by both of the committees I have just mentioned, culminating in our stated meeting in Los Angeles on Thursday and Friday of last week. Mr. Whitney attended the board meeting in order to report the recommendations of his committee, and those recommendations were adopted unanimously by the board of managers on Friday afternoon of last week. This explains, I think, some of our difficulty in having the finished position that we can give to you in writing today.

Because of our unique positions as advocates on a day-to-day basis for parties on both sides of patent-antitrust problems, we think it is essential that the law be as clear as is feasible, that it protect the viability of the patent systems incentives to competition in R. & D. and to progress of the arts resulting from new inventions, and that it also protect the public interest in competition in already existing products.

62-614-71-pt. 1- -25

We are gravely concerned by the constantly increasing body of evidence that it is not enough to rely on case law for this protection. Turning to amendment No. 24 of the Scott amendments, I am authorized to state here that the American Patent Law Association continues its strong endorsement and support of that amendment. It is our firm belief that there is a clear and present need for legislative confirmation of the principles set forth in that amendment.

The right to grant licenses has long been recognized by the case law, but it has never been a statutory right. That principle is clearly defined in recommendation XII of the President's Commission in 1966, especially made part of the legislative history in its entirety by Senator Scott's introductory remarks in the Congressional Record for the Senate on March 19, 1971.

We believe that the principles of amendment 24 should be confirmed by statute after hearings such as these where all points of view, public and private, can be considered. We think this is far superior to a case-by-case development where necessarily only the points of view of the two litigants on the narrow facts of a specific case are considered.

I am reminded here of the old adage that bad facts lead to bad law, and this seems to have been the development of the antitrust law as it has affected patent law in recent years.

The case-by-case method is also extremely costly, which makes it especially difficult for the private inventor and small business. In this respect we fully agree with the position of the Antitrust Division as expressed by one of its attorneys, Neil E. Roberts, in connection with proposed amendments to the Bank Merger Act. In volume 56 for March 30, 1971, of the BNA Antitrust and Trade Regulation Report, Mr. Roberts is quoted as saying, "A stubborn step-by-step development of the law in the courts, each step taking years and costing private parties as well as the Government a great deal of time and money, would not serve our interests any more than those of the other party involved.”

We find it anomalous that while the Department of Justice apparently considers the case-by-case approach to be inappropriate in the bank merger field, it takes an entirely different view in the patent field. Statements by the Justice Department as to areas in which test cases are being sought have the effect of de facto law and usurp the functions of both Congress and the courts in that patent owners, in the hope of avoiding the vagaries and expenses of test cases, refuse to adopt perfectly proper, lawful and economically desirable courses of conduct simply to avoid establishing a factual situation which might give rise to a test case.

The recent pronouncements on field of use licensing are a typical case in point. We think that field of use licenses, where they are reasonable, permit a patentee to license a series of small manufacturers doing business in diverse fields, assisting them to gain access to improvements in their respective fields, in contrast to the other alternative of the patentee, which is to license a large multimarket conglomerate.

Mr. Chairman, just before you came this afternoon, we had a very graphic illustration of the importance of field of use licensing explained by one of the witnesses directly representing such a case.

I am also reminded at this point from my personal experience of the case of Polaroid Corp., which a witness this morning cited as a company which did not need the Scott amendments to grow. I have some personal experience with Polaroid. I spent 5 years with them before returning to private practice. I was there in the early days before the Land camera was developed, and while Polaroid today, I think, is perhaps a prime example of how a company can grow on the basis of utilizing its own patents, my recollection from my ancient history is that Polaroid stayed in business long enough to get going by reason of the field of use licenses that it granted as far back as the thirties. The first one was a license to Eastman to make camera filters, and for most of the years that I was there, which began prior to World War II, the great bulk of its income came from a field of use license in the sunglass field.

Now, from that start they went on to stand on their own but I think it was a poor example that this morning's witness picked.

Another problem that we run into with patent licenses is that they are often agreements which will extend over a relatively long period of time. We think it is very unfair for a patentee to find that he has rendered his patent unenforceable or in fact, he may even have committed a crime, because he entered into an agreement which was proper at the time when he made it but which through evolution of the law became improper.

The right of a licensee to contest the validity of the licensed patent, as enunciated in Lear v. Adkins, 395 U.S. 653, we think certainly implied that the licensee could contest the validity while he retained his license. We think that result would be inequitable and improper because the law favors settlement, and Lear makes it impossible to settle patent litigation finally.

The effect of Lear, we think, is a presumption of patent invalidity rather than validity if a licensee is to be permitted to maintain his license agreement while challenging validity.

He can, therefore, refuse to pay royalties until the patent is proved valid rather than continuing to pay until he proves the patent invalid.

Scott amendment 24 will force a licensee to take a choice between operating under his license and litigating, rather than taking a license which he can treat as an insurance policy against damages for infringement in excess of the statutory minimum or an injunction.

He can in effect, institute suit to challenge validity while he retains his insurance policy but does not pay policy premiums on it, which would be the royalties under the license.

We agree with the position stated by Mr. McLaren yesterday that the proper scope of Lear should prevent free ride insuranae policies, but we respectfully disagree with his views as to what the cases following Lear will hold. Legislation is needed to limit the licensee's right to contest validity to a time after the contract has been repudiated.

One further comment I have on amendment 24 derives from Mr. McLaren's statement yesterday that, and I quote, "Living with the narrow area of uncertainty which exists is far preferable to doing away with certain long-established rules designed to protect the public and our competitive system."

I note that he admits the existence of uncertainty, which obviously could be cured by legislation, but he then refers to doing away with what he calls certain long-established rules. He did not identify them. In fact, in answer to a question yesterday Mr. McLaren frankly admitted that he knew of no case which would be directly overruled by the Scott amendments.

As a final comment on amendment 24, may I say that while the purpose of these hearings and my comments today is to treat principles and not specifics, I think it important to note that the simple introduction of the word "merely" in the various subsections of proposed section 271 would obviate to a very large extent the objections to amendment 24 discussed at length yesterday by Mr. McLaren.

In approaching Scott Amendment 23, I find it very difficult to improve in any way on the discussion which was part of the remarks of Senator Scott in originally introducing amendment 23, in which he pointed out that this legislation is needed, and I quote: "In view of recent judicial decisions which cast a shadow of doubt on the propriety of entering into contracts for the protection of trade secrets, technical know-how and the like, and which suggest that such private contracts are preempted by the patent laws."

We agree with Mr. McLaren that in reversing the district court in the yet unreported case of Painton v. Bourns, the Second Circuit Court of Appeals properly enunciated this aspect of the law of trade secrets, and I believe I heard Professor Turner say essentially the same thing here this morning. For the guidance of other circuits, however, the law as set forth in this decision should be codified in order that the concurring dissent of Lear will not again he followed by a lower court. We should avoid further decisions in which a court which lacks any clearly definitive statutory base and without benefit of brief or argument, as in Painton, reaches a decision of which the defendant was, in the words of the Second Circuit, "the unexpected beneficiary."

In a statement yesterday Mr. McLaren characterized amendment 23 and section 301 as drawing into question the holdings in Sears and Compco. We could not agree less. In our view, section 301 and amendment 23 in fact constitute consumer protection legislation in that they prevent the decisions in Sears and Compco from being misinterpreted to permit the copying of unpatented subject matter in such way as to result in the confusion and detriment of the public.

Another example of the need for legislation to clarify this presumption doctrine is provided by a decision published only this week and which actually did not come into my hands until the luncheon recess today. It is the decision of the Seventh District Court of Appeals in Bailey v. Logan Square, not yet published in the Federal Reporter but published at 169 U.S.P.Q. 322.

In that case the seventh circuit directly considered Sears, Compco, Lear, and INS v. The Associated Press in a case which involved the copying of specific alphabet styles used in printing.

The court remanded the case to the State court from which it had been removed for trial under State law.

Well, that leaves nine circuits in which the law has not yet been established. Must the public and the Government go on to continue to

spend time and money over the next 5 to 15 years to clarify this issue for the other nine circuits?

Again, I say now is the time to act legislatively to remove this needless uncertainty.

Turning to section 6 of S. 643, the provision to repeal the compulsory licensing section of the Clean Air Act, the American Patent Law Association strongly endorses this legislation. Our Committee on Patent Law, by an overwhelming vote, recommended to the board of managers a resolution strongly supporting this section and the board of managers approved without dissent. Our association originally vigorously opposed the proposed section 309 of the Clean Air bill in the 91st Congress. That proposed section was not enacted but the substitute section 308 was adopted by the Senate-House Conference. Section 308 was then enacted into law at the very end of the last session of the 91st Congress. Neither proposed section 309 nor actual section 308 had the benefit of public hearings or of considerations by this subcommittee or any other appropriate legislative committee.

In a letter written November 17, 1970 to the Senate-House conferees, the Secretary of Health, Education and Welfare opposed enactment of section 309. In that letter the Secretary specifically suggested that if in the future a situation should arise where refusal to make technology available threatened the antipollution effort, the Congress could legislate at that time. This is precisely the approach taken in proposed section 6.

Yesterday Mr. McLaren-and I believe it was also Mr. Clark this morning both opposed this section and advocated compulsory licensing. We could not be in more direct disagreement and for basic practical reasons.

Let me illustrate first from my own experience. A major client some years ago had a president who did not approve of his company spending any money on R. & D. His attitude was "Let company B develop it and then we can always take a license." Well, it has been 25 years since that president retired and since his philosophy was overturned, and that company is still a major client of my firm and it is still far from catching up with company B.

When we transpose that bit of history into a field or an industry where compulsory licensing is available, who will do the research for that industry? What will be the incentive to risk the expense of R. & D.?

I very much fear that those who have appeared here as proponents of compulsory licensing suffer from the same disadvantage as most of the opponents of the Scott amendments, they are long on philosophical theory but lacking in practical experience. The simple fact is that if only one company is doing R. & D. for an industry, the results are necessarily meager as compared to what could have evolved from competitive research.

What the proponents of compulsory licensing and the opponents of the Scott amendments overlook is that competitive R. & D. may well be the highest form of competition, offering the best potential of benefits to the public and offering also the potential of maximum advance of the technology in that art or field.

Before moving on from the general subject of S. 643 I want to note that about one-third of Mr. McLaren's testimony yesterday involved